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HONG KONG (Reuters) - Hong Kong s embattled leader Leung Chun-ying vowed on Sunday to stay in office, warning students demanding his resignation that their pro-democracy movement was out of control.

Leung said the blockade of key parts of the Asian financial hub - now entering its third week - could not continue indefinitely.

Speaking in an interview with the local TVB television station, Leung said his government would continue to try to talk with student leaders but did not rule out the use of minimum force to clear the area.

The last few weeks had proved that a mass movement is something easy to start, but difficult to stop, he said.

And no-one can direct the direction and pace of this movement. It is now a movement that has lost control.

Leung also warned that there was zero chance that China s leaders in Beijing would change an August decision limiting democracy in Hong Kong.

The former British colony was promised that its freedoms would be protected under a one country/two systems formula, when Britain handed its old colony back to China 17 years ago.

Beijing has said that only candidates screened by a nomination committee will be able to contest a full city-wide vote to choose the next chief executive in 2017.

The official People s Daily in Beijing described the so-called Occupy Central movement as unrest in a front-page editorial published on Saturday - language some analysts said reflected the growing unease among China s leaders.

Leung s comments came as the protest centre outside government head offices in Admiralty took on the feel of a festival campsite in a canyon of skyscrapers.

In here, it is like a piece of green land, said Maggie Cheung, a 27-year-old kindergarten teacher, who added that she would leave to start work tomorrow.

People are caring and we are sharing the same goal - we fight for a better future. It is like utopia here.

Some 200 tents now line Gloucester and Harcourt roads on what had been one of Hong Kong s busiest thoroughfares leading to the glittering Central financial district.

Hundreds of protesters, young and old, slept overnight in what some protesters described as the most peaceful, relaxed night yet. Some strummed guitars between speeches, others played cards or read.

Some students studied in a makeshift classroom, complete with desks and power sockets set up on the highway.

Walls and overpasses have been festooned with thousands of notes, signs and banners, some depicting Leung as a mafia chief and others warning Taiwan beware of accepting a one country/two systems formula in any reunification deal with Beijing.

Many family groups visited the site on Sunday, taking advantage of balmy autumn conditions.

Not everyone was happy with the carnival atmosphere. Construction workers and a drivers union challenged the students to end their protests, and warning them to dismantle the barricades as it was effecting their work.

Democracy is very important but people s livelihoods are also very important, said Chan Tak-keung, one of a group of angry taxi drivers who shouted at the students in Admiralty.

LEUNG UNDER PRESSURE

Protests escalated late last month after police used tear gas and batons on demonstrations and key streets in Central, Admiralty, Causeway Bay and Kowloon remain blocked.

Numbers dropped significantly last week, rising again on Friday night as 10,000 people turned out to hear protest leaders urge the public to prepare for a protracted struggle.

Despite the festival atmosphere in Admiralty, the situation remains tense on the streets of the gritty district of Mong Kok, with scuffles reported between police and protesters overnight.

Though talks with student leaders were called off last week, Leung said on Sunday that the government had to take account of the students demands, while adding that both their demands and actions had to be lawful.

If we need to clear the area, I believe that police will use their professional training...using minimal force. We don t want to see our people and our students get hurt, he told TVB.

Leung is also under pressure over lawmakers calls for anti-corruption investigations into a .4 million business payout.

The deal involved a payment to Leung from listed Australian engineering firm UGL after it bought an insolvent firm, DTZ Holdings, that Leung represented in Asia. While it was struck in 2011 before he took office, it involved on-going obligations and payments.

It doesn t (involve) any conflict of interest, Leung said on Sunday, saying the deal did not violate any legal or ethical issues.

The two students groups and the democratic activist movement behind the protests formally rejected Leung s statements, demanding full accountability for the use of tear gas and for failing to fully reflect to Beijing Hong Kong s desire for democracy, and described him as beset by scandal .

The three groups said in a statement: We cannot allow one person, Leung Chun-ying, to destroy the Hong Kong core values we so cherish!